OF THE MANY QUESTIONS surrounding the Affordable Care Act (ACA) and its implemen-tation ldquoHow will premiums changerdquo remains

at the top of the list The answer to that question can be complicated according to Academy experts who briefed congressional staff and reporters May 17 on Capitol Hill

Audrey Halvorson chairperson of the Academyrsquos Rate Review Practice Note Work Group and Cori Uccello the Academyrsquos senior health fellow presented information from a related new Academy issue brief How Will Premi-

ums Change Under the ACA and fielded questions on the complicated matter of premium changes

Halvorson began by discussing the many factors that actuaries consider as they determine premiums

WITHIN THE SPACE OF ONE BUSY WEEK Academy fellows testified before two differ-ent congressional committees one focused on

issues surrounding the Affordable Care Act (ACA) and the other on Social Securityrsquos solvency

On May 20 Academy Senior Health Fellow Cori Uccello testified before the US House of Representatives Energy and Commerce Subcommittee on Oversight and Investigations Uccello was one of four experts invited to give their perspectives on health insurance premiums under the ACA Other witnesses included Chris Carlson principal and consulting actuary at Oliver Wyman Group Daniel T Durham executive vice president of policy and regulatory affairs at Americarsquos Health Insurance Plans and Topher Spiro vice president for health policy at the Center for American Progress

Uccellorsquos testimony set the framework for under-standing how premiums will change when specific issue and rating rules go into effect on Jan 1 She emphasized throughout her testimony that ldquothese rules will affect not only overall average premiums but also the specific pre-miums that individuals will face It is important however to highlight that premium changes will differ across states and among individualsrdquo

Actu

arial UP

DA

TE

TH

E

NE

WS

MO

NT

HL

Y

OF

T

HE

A

ME

RI

CA

N

AC

AD

EM

Y

OF

A

CT

UA

RI

ES

Revised ASOP No 1New ASOP in effect June 1

22US Qualification StandardsComments sought on seven questions

Election UpdateLearn more about candidates and issues

4ABCD RevisionsComment on the exposure draft

6

SEE TESTIMONY PAGE 6

M A Y 2 0 1 3

SEE HILL BRIEFING PAGE 8

Academy Fellows Testify Before House CommitteesExpert ise in ACA Social Security

ACA Premium Changes Addressed on Capitol Hill

Audrey Halvorson discusses the complicated nature of premiums at the Academy Hill briefing

Cori Uccello testifies before the US House of Representatives Energy and Commerce Subcommittee on Oversight and Investigations

ACTUARIES including regulators and the public now have an opportunity to comment on the US Qualification Stan-

dards (QS) promulgated by the Academy and applicable to members of all five US-based actu-arial organizations It has been more than five years since actuaries and the public have been asked for their input on the QSmdashthe most recent revisions became effective on Jan 1 2008

The Academyrsquos Committee on Qualifications is soliciting the public for comments or sugges-tions as part of its review of the QS to see if any new revisions to the standards should be made The Academy Board of Directors approved the committeersquos plans to begin this process on May 9 There may or may not be revisions so actuar-ies or others who feel strongly about any aspects of the QS should get involved Since 2008 the committee has received hundreds of questions and comments from individuals companies and professional organizations and will re-consider these comments as it reviews additional input from the public

Seven questions are of particular interest to the committee These questions cover issues surrounding Requirements for new and evolving prac-

tice areas Continuing education (CE) minimums and

maximums Statements of Actuarial Opinion and the

Code of Professional Conduct NAIC statements of actuarial opinion and

continuing education requirements for those issuing them

Carryover requirements for CE credits

The Committee on Qualifications will accept

comments electronically or through the mail although electronic submissions are preferred The committee will post comments in the order in which they were received and will not consider or post anonymous or unsigned sub-missions The review process is designed to encourage transparency and dialogue among all interested parties The committee will not edit amend or truncate comments

The review process is just the first step Depending on submissions and other factors the committee may recommend that the QS not be revised If the committee does decide to change the QS it will follow the process outlined in Appendix 3 of the QS which includes an exposure period for comments and Academy board approval

Comments and suggestions should be submit-ted no later than July 31

Academy NEWS Briefs

C A L E N D A R

JUNE4 Webinar Regulatory Issues for Small Insurance Companies

17 Professionalism Webinar Setting the Ground Rules Revised ASOP No 1 and Other Key Information for Actuaries

JULY11ndash14 NCOIL summer meeting Philadelphia

15 Academy summer summit Washington

AUGUST14 Academy Executive Committee meeting Washington

24ndash27 NAIC summer national meeting Indianapolis

SEPTEMBER16ndash17 Casualty Loss Reserve Seminar Boston

OCTOBER1 CUSP meeting Washington

1ndash2 Academy Board of Directors meeting and board orientation Washington

20ndash23 CCA Annual Meeting San Antonio

20ndash23 SOA Annual Meeting San Diego

NOVEMBER3ndash6 CAS Annual Meeting Minneapolis

4 Academy Annual Meeting and Awards Luncheon Minneapolis

11ndash14 2013 Life and Health Qualifications Seminar Arlington Va

15ndash16 NAAC meeting (AAA) South Beach Fla

21ndash24 NCOIL Annual Meeting Nashville Tenn

DECEMBER11 Executive Committee Meeting Washington

15ndash18 NAIC Fall National Meeting Washington

To continue receiving the Update and other Academy

publications on time remember to make sure the Academy has your

correct contact information Academy members can

update their member profile at the member log-in page on the Academy website

2wwwactuaryorg Actuaria l UPDATE MAY 2013

Comment on the US Qualification Standards

Know Your Standards Revised ASOP No 1 Effective June 1

ACTUARIAL STANDARD OF PRAC-TICE NO 1 Introductory Actuarial Stan-

dard of Practice a complete revision of the previous introduction was adopted by the Actuarial Standards Board (ASB) in March 2013 and is effective for all actuarial services per-

formed on or after June 1 2013 It includes addi-tional content and clarification of prior language and sets the ground rules for all ASOPs

Since earlier revisions in 2008 the ASB has received comments that prompted the commit-

Learn More About ASOP No 1

Join a panel of experts involved in the

drafting and finalizing of new ASOP No 1

on June 17 for the webinar entitled Setting

the Ground Rules Revised ASOP No 1 and

Other Key Information for Actuaries Learn

about new information contained in the

revised ASOP No 1 Introductory Actuarial

Standard of Practice which becomes

effective June 1 2013 It is a complete

revision of the previous Introduction and

includes new additional content as well as

clarification of prior language and sets the

ground rules for all ASOPs

CONTINUED ON PAGE 3

wwwactuaryorg Actuaria l UPDATE MAY 2013 3

IN THE NEWSSenior Health Fellow Cori Uccello wrote ldquoUnderstand-

ing the Reasons for Premium

Changes Under the ACArdquo for the HealthAffairs blog Uccello also was quoted in some other articles on ACA and its effects on premium changes ldquoInsurers Consumers Still

Face Uncertainty Over Health

Insurance Premium Pricesrdquo ldquoActuaries PPACA May Have

Mixed Effects on Costsrdquo ldquoUnderstanding ACA-

Related Premium Changes

Is Complicatedrdquo ldquoHealth Affairs Blog Post

How the Health Reform

Law Will Affect Premiumsrdquo ldquoWhat Will PPACA Really

Do to Coverage Pricesrdquo

The Academy was mentioned in relation to ACA and its ef-fects in these articles ldquoHow Obamacare Will Af-

fect Ranks of Uninsured

lsquoJust Speculationrdquo ldquoSome Nevadans May See

Higher Premiums Under

Obamacarerdquo ldquoImplementing Health

Reform Defining lsquoMini-

mum Valuersquo for Employer

Coveragerdquo ldquoDaniel Kessler The Com-

ing ObamaCare Shockrdquo ldquoInsurersrsquo Networks Will

Help Recruit Members on

Exchangesrdquo ldquoTwo States Say 2014

Obamacare Insurance

Costs on Low Siderdquo ldquoObamarsquos War on the Youngrdquo

An article about the Terrorism Risk Insurance Act in Insurance Journal mentions Academy estimates as does ldquoTough Talk

Begins Over TRIA Renewalrdquo

Martindalecom mentioned the Academyrsquos economic sce-nario generator in a section discussing insurance company interest rate risk management

The Academyrsquos work on pen-sions was mentioned in ldquollinois

Pension Reform 101rdquo

Senior Pension Fellow Don

Fuerst was quoted in ldquoSaving

Social Security Why New Pro-

posals Are Drawing Firerdquo Also Fuerst was interviewed on the MoneyLife radio show about his testimony on Social Secu-rity and recommendations to raise the full retirement age

Academy President Cecil Bykerk was interviewed for the STEM special supplement to the Wash-ington Post about why being an actuary is one of the best jobs in America Additionally the Acad-emy was cited in several articles discussing the job of actuary and its high ranking on ldquobest jobsrdquo lists ldquoThe Best Job You Never

Thought Ofrdquo and ldquoThe Best

Jobs of 2013rdquo

tee to look again at what had been the Introductory ASOP and it is now ASOP No 1 (Nonguaranteed Charges or Benefits for Life Insur-ance Policies and Annuity Contracts which previously was num-bered as ASOP No 1 and was changed effective March 21 2013 to ASOP No 2 Recommendations for Actuarial Communications Related to Statements of Financial Accounting Standards Nos 87 and 88 formerly ASOP No 2 was repealed on March 14 2011 and does not apply to actuarial communications issued after that date)

Michael Abroe chairperson of the ASB General Committee and Mary Simmons a member of the ASB General Committee were involved with the ASOP No 1 update process

ldquoThe release of ASOP 1 is appropriate as guidance is updatedrdquo Abroe stated ldquoEach section of the ASOP contains changes and is intended for all actuarial work Also Appendices 1 and 2 provide background and responses to comments receivedrdquo

When asked which comments were most helpful to the work Abroe said ldquoSeveral comments were received with respect to the terms lsquomustrsquo lsquoshouldrsquo and lsquoshould considerrsquo As part of the response process all ASOPs were reviewed This was time-consuming but very informative and beneficial to committee membersrdquo

With respect to serving on the ASB General Committee Sim-mons said ldquoI found it to be rewarding to be part of a cross-disci-plinary team working on thismdashgetting to see it through from being just an idea to being a full-fledged ASOPrdquo

She sees benefits from the updates for the profession ldquoI think that we are all better off if there is no confusion about

basic terminology in the ASOPs and no confusion about basic con-cepts of when the ASOPs applyrdquo she said ldquoASOP No 1 helps to clarify some of these basic concepts when the whole profession is reading the same words and interpreting themrdquo

ASOP No 1 continued from Page 2

The Jarvis Farley Service Award is given to Academy members whose volunteer efforts on behalf of the Academy have made significant contributions to the advancement of the profession The Robert J Myers Public Service Award recognizes actuaries who have made an exceptional contribution to

the common good whether for a single noteworthy public service achievement or a career devoted to public service And the Award for Outstanding Volunteerism honors Academy volunteers who have made a single noteworthy contribution above and beyond what is reasonably expected

AcAdemyrsquos AnnuAl member AwArds Are now open for nominAtions

wwwactuaryorg Actuaria l UPDATE MAY 2013 44

2014 Academy Board ElectionsOfficer UpdateIn a report delivered at the May 9 meeting of the Academyrsquos Board of Directors the Academyrsquos Nominating Committee has rec-ommended to the board a slate of officers led by Mary D Miller as the candidate for Academy president-elect in 2014 In addi-tion to working at the Ohio Department of Insurance Miller served at the National Association of Insurance Commissioners as vice chairperson of its Casualty Actuarial and Statistical Task Force Over the years Miller has served the public interest through various volunteer positions at the Academy including as a regular direc-tor on the Academyrsquos board vice president of the Casu-alty Practice Council and as co-chairperson of the Financial Soundness and Risk Management Commit-tee Miller was awarded the 2011 Robert J Myers Award for Public Service The Academy Board of Direc-tors will vote on the slate of 2014 officer candidates at its annual meeting which will be held with its regular fall board meeting on Oct 1 2013

The committee also named Art Panighetti an actuary at Northwestern Mutual in Milwaukee to serve a second year as the Academyrsquos treasurer and for secretary nominated John Moore from Denver a consultant with TTerry Consult-ing and the current vice president for pen-sion issues The secretary and treasurer positions are elected annually by the board with a limit of three consecutive one-year terms Panighetti previously served on the Academyrsquos board as 2010ndash2011 vice presi-dent for life issues

On the slate to fill what will be three open vice president positions on the board

are Mary Bahna-Nolan director in the actuarial and insurance management solu-tions life practice at PricewaterhouseCoo-persrsquo Chicago office and chairperson of the Academyrsquos Life Experience Subcommittee for life issues Eli Greenblum senior vice president and actuary at the Segal Co in Washington and chairperson of the Mul-tiemployer Plans Subcommittee for pen-sion issues and William Hines consulting actuary at Milliman in Wakefield Mass

and chairperson of the Financial Reporting Committee for risk managementfinancial reporting issues Vice presidents serve a two-year term on the board

Regular Director UpdateThe Nominating Committee will provide a slate to the membership this summer of nominees for the four regular director positions open for election by members in the Academyrsquos third online election There will be three full three-year terms available for election and one one-year term to fill the remaining year of the unexpired term that would be created by the election of Mary Bahna-Nolan to be vice president for life issues

The Nominating Committee has been soliciting regular director candidates

from the membership at large since Feb 1 through notices on the Academy website and in its publications It is the Academy boardrsquos strong preference that those who want to be considered for regular direc-tor openings undergo the due diligence provided by the Nominating Committeersquos regular process The deadline is June 7 for submitting a nomination directly to the Nominating Committee for these posi-tions The Nominating Committee intends

to announce its slate of regular director candidates to the membership on July 1 At that time the com-mittee also will provide specific details about how someone may submit a petition to be placed on the ballot for a regular direc-tor position The board has decided that petitions will require signatures of 1 percent of the member-ship of the Academy and can have no more than 25 percent of those signatures

from any one employer The easiest way to get on the ballot for an Academy regular director position is by submitting a nomi-nation directly to the Nominating Com-mittee The committee anticipates that a slate of regular director candidates will be announced to the membership Aug 2 with biographical information and an opportu-nity to pose questions to candidates as in the past

Chaired by 2011 Academy President Mary Frances Miller the Nominating Com-mittee includes President Cecil Bykerk Immediate Past President Dave Sandberg and President-Elect Tom Terry Other members are Mary Bahna-Nolan Mark Dunbar Gary Josephson Tonya Manning Marc Oberholtzer Patricia Rotello and Shari Westerfield

wwwactuaryorg Actuaria l UPDATE MAY 2013 5

MLR Work Group Weighs in on Medicare Advantage Part D

Health News

Committee Comments on ACA Insurer Fee

ON MAY 17 the Health Practice Financial Reporting Committee sub-mitted comments to the NAIC on its

proposed modifications to the Maintenance Agenda Submission Form The comments discuss the timing differences that certain Affordable Care Act (ACA) assessments have created for carriers such as when policyhold-ers receive funds before assessments are paid These differences can create confusing or mis-leading end-of-year financial statements

The committee suggests ldquoRequiring car-riers to establish a liability at the end of the data year for amounts already received from policyholders to fund ACA assessments (including the health insurer fee and the temporary reinsurance program collections) would result in the fewest unintended con-sequencesrdquo Concerns about this approach hiding insolvencies could be addressed through changes to the deficiency reserve process if necessary

Work Group Looks at Benefit and Payment Parameters Rule

THE RISK SHARING WORK GROUP submitted com-

ments on April 30 to the Department of Health and Human Services on the interim final rule implementing amendments

to the Notice of Benefit and Payment Parameters final rule The work group commented on several aspects of the rules Calculation of allowable costs for the risk corridors program

Cost sharing reduction (CSR) reimbursement simplified methodology

Risk adjustment payment methodologymdashuse of total premium rather than premium net of certain expense components

Interim estimates Risk adjustment and reinsurance data requirements

Draft Rate Review Practice Note Released

T HE RATE REVIEW PRACTICE NOTE WORK GROUP issued on April 26 the exposure draft Adden-

dum to Actuarial Practices Relating to Pre-paring Reviewing and Commenting on Rate Filings Prepared in Accordance with the Affordable Care Act An addendum to the October 2012 practice note of the same name the exposure draft covers modifica-tions to the regulations implementing the ACA provision

For actuaries these requirements are used for filing with states and HHS when applying for qualified health plan (QHP) status and when a plan or product has an increase with products plans and rating requirements beginning in 2014

The new rate review and disclosure requirements fall under Parts I II and III

Part Imdashthe Unified Rate Review Tem-plate (URRT) Worksheet 1 with aggregate information across the entire risk pool and

Worksheet 2 with information by product and plan within products

Part IImdasha summary description of the rate changes filed whenever a rate increase is greater than the threshold for rate review

Part IIImdashthe actuarial memorandum that describes and supports the develop-ment of information provided in Part I

Comments on the addendum are due June 3

THE MEDICAL LOSS RATIO (MLR) Work Group on April 25 submitted comments to the Centers for Medicare amp Medicaid Services on the proposed rule implementing MLR

requirements for Medicare Advantage and Medicare prescription drug (Part D) programs The work group focused on key areas that could benefit from further clarification or work group experience

with commercial MLR regulation These include Timing and restatements of MLR reporting Credibility adjustment Issues addressed in CCIIO sub-regulatory guidance Treatment of Part D reinsurance and low-income cost-sharing 100 percent indemnity reinsurance

wwwactuaryorg Actuaria l UPDATE MAY 2013 6

Uccello described several complicated factors that determine how individual premiums will change in January including the Success of the individual mandate requirement and premium

subsidies to attract low-cost enrollees to risk pools New benefit requirements under ACA that increase plan gen-

erosity and reduce out-of-pocket costs Choices employers make in their coverage and the demographics

and health status of employees who move to the individual market Current state issue and rating rules and their similarity or dif-

ference with those beginning in 2014 Demographic characteristics and health status (and income

when determining premiums net of subsidies) of individualsSeveral legislators had follow-up questions for the witnesses

Chairman Tim Murphy (R-Pa) asked Uccello about the individual mandate and different projections based on its success in attract-ing low-cost enrollees querying whether a lot of these estimates were based on the assumption that many people would sign up ldquoDo they also take into account that if people see rates go very high for themselves regardless of subsidies they may not sign up and then that will affect rates as wellrdquo Murphy asked

ldquoEach of those projections makes assumptions regarding par-ticipation in the marketrdquo Uccello told the committee ldquoKey to the viability of this program is attracting the lower-cost people into the pool to help offset the higher costs of other peoplerdquo

When other members had similar questions on projects and costs Uccello reiterated the importance of the individual mandate and premium subsidies but also noted that factors such as reinsur-ance programs and catastrophic plans for adults up to age 30 can help lower premiums

ldquoIt depends on how effective those provisions are at mitigating the other upward pressuresrdquo she said

It was the turn of Academy Senior Pension Fellow Donald Fuerst to testify on May 23 at a hearing of the House Ways and Means Sub-committee on Social Security Witnesses discussed various biparti-san proposals for addressing Social Securityrsquos continuing solvency and the effects new approaches would have on beneficiaries work-ers and the economy

In addition to Fuerst witnesses included Jason Fichtner senior research fellow at the Mercatus Center G William Hoagland senior vice president at the Bipartisan Policy Center Ed Lorenzen execu-tive director of the Moment of Truth Project at the Committee for a

Responsible Federal Budget Leticia Miranda senior policy adviser of economic security policy at the National Council of La Raza and C Eugene Steuerle an institute fellow at the Urban Institute

ldquoA longer life creates numerous benefits for individuals but brings with it an expensive challenge how to provide financial security for our seniorsrdquo Fuerst told the committee

He noted that a later full retirement age could help mitigate Social Securityrsquos long-range financial problems and that addressing Social Securityrsquos solvency now would permit more modest changes to be phased in gradually

ldquoRaising the full retirement age addresses Social Securityrsquos long-range financial problems while responding to changing demo-graphic factorsrdquo Fuerst said ldquoIn particular raising the full retire-ment age will compensate for increases in longevity preserve the current benefit formula increase labor force participation and preserve disability benefitsrdquo

Policy options that target challenges associated with a later retirement age such as disparate longevity among lower wage workers and job opportunities for older workers could be addressed through other programs

Video recordings of both hearings are available at httpwww

actuaryorgcontentnewsroom

Testimony continued from Page 1

THE ACTUARIAL BOARD FOR COUNSELING AND DISCIPLINE (ABCD) has released an exposure draft of pro-posed revisions to the ABCD Rules of Procedure The draft

booklet contains several proposed changes1 Minor changes to the ABCD process reflecting its experience

since 20052 Language that recognizes electronic forms of communication as

valid forms of communication3 Deleted references to Washington DC as the location of the

ABCD office although it is the current location The change eliminates the need to change the Rules of Procedure if any move occurs in the future The current address of the ABCD is on the back cover of these revised Rules of Procedure

4 Edits for grammar and internal consistencyThe ABCD prefers electronic submissions but accepts com-

ments delivered electronically or by mail The deadline to submit your comments to the ABCD is June 30 2013 Find out more at the ABCD website

ABCD Releases Draft Procedure Revisions

Don Fuerst speaks before the House Ways and Means Subcommittee on Social Security

wwwactuaryorg Actuaria l UPDATE MAY 2013 7

Casualty News

Life News

LPC Analyzes PBR Implementation

THE ACADEMY SUBMITTED TWO LETTERS to the NAIC on May 6 The Life Practice Council sent comments to the Principle-Based Reserving (PBR) Implementation (EX)

Task Force on its PBR Draft Implementation Plan The letter under-scored the importance of new language added to Section 1 relating to PBR methodology and the willingness of the Life Practice Coun-cil to work with NAIC to develop appropriate procedures The PBR Strategy Subgroup submitted comments on the draft NAIC legisla-tive brief on PBR

CPC Comments on Mortgage Insurance Document

Aaron Weatherman an actuary with Allstate Insurance

Co in Northbrook Ill has joined the Life Financial Reporting

Committee

Randy Wright an actuary with Transamerica in St

Petersburg Fla has joined the Nonforfeiture Modernization

Work Group

Mike Harrington a consulting actuary with Actuarial

Resources Corp in Overland Park Kan has joined the

Annuity Reserves Work Group

Link Richardson vice president and actuary for

American General Life Companies in Houston has been

appointed chairperson for the C3 Life amp Annuities Work

Group Also joining the work group are Dale Uthoff

vice president with Aviva USA in West Des Moines

Iowa Zengdi Zhuang assistant vice president and

actuary with the Hartford Life Insurance Companies in

Simsbury Conn Nancy Bennett senior life fellow for

the American Academy of Actuaries in Washington

DC Patricia Matson vice president of Massachusetts

Mutual Life Insurance Co in Springfield Mass and Jeff Johnson assistant vice president and actuary for John

Hancock USA in Boston

LIFE BRIEFS

Matthew Covalle manager of advanced modeling with

PolySystems Inc in Chicago has joined the ORSA Subgroup

RISK MANAGEMENT AND FINANCIAL REPORTING BRIEFS

Derek Guyton partner at Mercer in Chicago has joined the

Joint Committee on Retiree Health

David Gustafson chief policy actuary for the Pension

Benefit Guaranty Corp in Washington DC and Jeff Litwin senior vice president for Sibson Consulting in

New York have joined the Lifetime Income Risk Joint

Task Force

David Kausch chief actuary with Gabriel Roeder Smith

and Co in Southfield Mich has joined the Public Plans

Subcommittee

Jason Russell a consulting actuary with Horizon Actuarial

Services in Silver Spring Md has joined the Multiemployer

Plans Subcommittee

Karen Glenn an actuary with the Social Security

Administration in Baltimore has joined the Social Security

Committee

John Stokesbury director for Deloitte Consulting LLP

in Parsippany NJ has been appointed chairperson for the

Pension Accounting Committee and has joined the Pension

Practice Council

PENSION BRIEFS

THE CASUALTY PRACTICE COUNCIL (CPC) commented on the Bank for International Settlementsrsquo document on the market structure underwriting cycle and policy implications

of mortgage insurance The CPC organized its response into two general categories underwriting recommendations (including pru-dent origination and underwriting of mortgages and mortgage insurance) and capital safety and soundness recommendations (including capitalization and prudent accounting provisions)

Actuarial UpdateCOMMUNICATIONS REVIEW COMMITTEE

Stephen Rosen ChairpersonJenna FarrissPaul FleischackerJohn GlebaKen HohmanGareth KennedyBarbara LautzenheiserTonya ManningBob MeilanderGeoffrey SandlerDebbie SchwabChet Szczepanski

EDITOR

Julia Goodwineditoractuaryorg

DESIGN AND PRODUCTION

BonoTom Studio Inc

DESIGNER

Paul Philpott

PUBLICATIONS AND MARKETING PRODUCTION MANAGER

Cindy Johns

American Academy of ActuariesPRESIDENT

Cecil BykerkPRESIDENT-ELECT

Tom TerrySECRETARY

Stephen RosenTREASURER

Art PanighettiVICE PRESIDENTS

Mike AngelinaMaryellen CogginsJohn MooreCande OlsenDavid SheaKaren TerryEXECUTIVE DIRECTOR

Mary DownsDIRECTOR OF COMMUNICATIONS

Charity SackASSISTANT DIRECTOR FOR PUBLICATIONS

Linda MallonEXECUTIVE OFFICE

The American Academy of Actuaries1850 M Street NWSuite 300Washington DC 20036Phone 202-223-8196Fax 202-872-1948wwwactuaryorg

Statements of fact and opinion in this publication including editorials and letters to the editor are made on the responsibility of the authors alone and do not necessarily imply or represent the position of the American Academy of Actuaries the editors or the members of the Academy

copy2013 The American Academy of Actuaries All rights reserved

Hill Briefing continued from Page 1

wwwactuaryorg Actuaria l UPDATE MAY 2013 8

Risk pools (who is covered) Projected medical costs (including health care

use and prices) Other premium components (for example

administrative costs taxes and profit) Laws and regulations that affect these factors

Uccello then went on to explore the various pro-visions in the ACA that affect premium components and how premiums could change as a result For instance the guaranteed issue individual mandate and premium subsidies will affect the risk pool and therefore average premiums But determining the overall effect is complicated because these factors can move premiums in the opposite direction

ldquoWe could see an influx of higher-cost people due to the guaranteed issue provisionrdquo Uccello said ldquoOn the other hand depending on the effectiveness of the individual mandate and premium subsidies lower-cost people could be drawn to the poolrdquo

Beginning in 2014 insurers in most states will have less flexibility regarding the extent to which they can charge different premiums to different individuals based on age And charging different rates by health status will be prohibited

Uccello and Halvorson stressed the importance of moving beyond questions about the changes in average premiums Ultimately premium changes will vary across states depending on how their cur-rent rules compare with those taking effect in 2014 and across individuals depending on their demo-graphic and health status characteristics

States that already have restrictions and require-ments similar to those in the ACA could see their premiums decrease as the individual mandate and premium subsidies attract low-cost people to the insurance market Less restrictive states could see their premiums go up With only a few states post-ing new premiums it is too early to get a definitive handle on overall trends

At the individual level relative premiums will shift from the less healthy to the healthy because of prohibitions on health status ratings Relative pre-miums will also shift from older adults to younger ones because of rules limiting premiums to a 3-to-1 age ratio The prohibition on gender rating will alter who pays more depending on age

Although it can be relatively straightforward to understand the effects of these various factors in isolation Uccello noted the need to consider all of the factors together to assess the impact on any particular person or subgroup

Other factors affecting premiums include new plan generosity requirements that could increase premiums but reduce out-of-pocket costs In addi-tion employer decisions on whether to continue offering coverage and the characteristics of any

workers who switch to the individual market will affect premiums

Projecting premiums gets complicated in other ways as well including the usual uncertainties that accompany any brand-new endeavor such as the ACA

ldquoWe are at the beginning of the processrdquo Halvorson said ldquoPreliminary rates in 2014 can be different than what will become final in later years And the rates will differ across states Actuaries are incorporating all of the factors and making their best judgmentsrdquo

Uncertainty will decrease over time as informa-tion regarding plan experience under the changing market dynamics becomes available

Both Halvorson and Uccello responded to ques-tions regarding insurer incentives to either under- or overstate premiums

ldquoThe Academy has emphasized the need for premiums to be adequate to cover claims and expensesrdquo Uccello said ldquoThey should not be set too high or set too lowrdquo

Halvorson added that the temporary risk cor-ridor program and the medical loss ratio (MLR) requirements reduce incentives for plans to over-state premiums

When asked specifically about the ACA provi-sions that could put downward pressure on premi-ums Uccello listed premium subsidies the individ-ual mandate catastrophic plans available to young adults and the temporary reinsurance program In response to a question regarding plan generosity she noted the need to consider how the ACA affects not just premium costs but also total out-of-pocket costs including cost sharing

As the briefing wrapped up Uccello and Halvor-son reiterated the key factors that will underlie the ACArsquos effects on premiums the success of the indi-vidual mandate and subsidies in attracting young and healthy people to the risk pool plan generosity requirements employer decisions to offer coverage and how they influence who joins the exchanges and who remains in employer-sponsored plans state variations in market rules pre- and post-ACA restrictions and requirements and individual demographic characteristics and health status

Get Ready for ICA 2014

Actuarial organizations around the world are invited to help promote

ICA 2014 Click here to find out more about registration and events